Establish the Nature of the Production Constraints

1. Total the work load for the bottleneck work center (s) for the next month. Your MRP system should be able to provide loading numbers by work center. To determine loading, only consider cycle times, excluding setup times, queue times, move times, etc. The bottleneck will typically be the work center with the greatest load to capacity ratio.

2. Determine the net capacity of the bottleneck. This net capacity must exclude all nonproductive losses due to breakdowns, maintenance, involuntary down time, etc. It must however include the time allocated for productive work and setups. The net capacity should reflect the work center's historical ability to convert capacity into the production of salable parts. If this information is not available, you do not understand your environment well enough.

3. Usually, the net capacity will exceed the projected load. If not, spread the load over the planning horizon or increase the capacity. Address this before thinking about KANBANs. Subtract the load from the net capacity to determine the residual capacity available for setups. For example, if the net monthly capacity is 252 hours (based on 21, 16 hour days, minus 25% nonproductive down time) and the projected load adds up to 212 hours, the residual capacity available for setups will be 40 hours over that month.

4. Total the setup times for all the parts that must be produced by the^bottleneck. If 20 parts must be pro­duced and they each require a one hour setup, this totals 20 hours of setups for one complete production cycle through all these twenty parts.

5. Divide the total setup hours from point 4 by the residual capacity from point 3. This will indicate the number of months (or weeks) which will elapse be­tween each complete production cycle. In our example, the total of 20 setup hours is divided by the 40 residual hours (from point 3), resulting in a 0.5 months produc­tion cycle. On average, then, each part will be produced twice a month, resulting in an average inventory of one week (average inventory, excluding safety stock if any, is equal to the lot size divided by 2). This indicates an inventory turnover rate of 52 per annum. This also means 40 lots will be put into production monthly.

Determine the Size of Production Lots

6. Determine the average production lot size by dividing the number of lots per month into the total load for the month. Thus, the 212 load hours are divided by the 40 lots, giving an average lot duration of 5.3 hours, or 5 hours and 18 minutes. If smaller lots were produced, more setups would be required, wasting too much capacity in setups. On the other hand, larger lots would simply build inventory or reduce equipment utilization.

7. For low consumption items, reduce the calculated lot size if the resulting stocks exceed twice the level required by the turnover objectives. If, for example, one of the parts has a monthly demand of 100, and the production rate is of 250 parts per hour, a 5.3 hour lot will yield 1325 parts, equivalent to 13 months of consumption. That's too much. If the target turnover rate is 6 turns per year (for an average inventory of 2 months), the maximum lot size we want to produce is 400. At the limit, we could go to 4 turns per year and lot sizes of 500, knowing that with the other parts, the average turnover rate will be much more aggressive.

As a rule, lots should never represent more than 6 months of demand; much less if there are shelf life considerations or product changes being envisioned. Although certain lot sizes are reduced, the lot sizing for the other parts should be left as they are. The small margin thus obtained will be used advantageously for opportunistic priority manage­ment once in the KANBAN technique is implemented in production.
The objective here is to establish a minimum nominal lot size allowing a sufficient production throughput while at the same time allowing the operator to reconsider his priorities often enough to be responsive to actual demand patterns. With KANBANs, this priority assessment is done every time a production lot is completed.

The operator consults his KANBAN planning board where he or she posts all the KANBANs returned by his or her client(s), to determine the next priority.

If a part shows a large demand, don't be tempted to increase its lot size. This is unnecessary because if the item really is really such a high mover, the customer will return the KANBANs just as fast, occasionally allowing a "back to back double lot," thereby "saving" a setup. This double lot can occur if the need arises, but would not be mandated every time that item is produced if the need for more product does not really exist, or other products are more urgently required. The other advantage of smaller nominal lot sizes is the fact that the operator has the occasion to reconsider his priorities more often. This reduces the reaction time to demand fluctuations, and,.as a result, the amount of WIP on the floor.

To Be Continued

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Lean Manufacturing Articles and go to Series 01